What Austrian Economics IS and What Austrian Economics Is NOT

Steven Horwitz

Since the start of the financial crisis and recession, there has been a renewed interest in the ideas of Austrian economics by scholars, public intellectuals, and even the media. For the first time in a long time, the analytical framework of Austrian economics is being taken note of, if not taken seriously, by a variety of opinion makers. This is, of course, a good development.

However, at the same time, this popularity has led to many people using the “Austrian” label to refer to their views on issues beyond those involving the analytical framework they bring to economics. In particular, “Austrian” has become the near-equivalent of “free market” or “libertarian” not only indirectly, but directly through the use of terms such as “Austro-libertarian” to describe particular policy preferences or broader worldviews. The result is that, despite the additional publicity, what Austrian economics IS has often been distorted into something it is NOT.

For example, earlier this month, columnist J. D. Hamel wrote “Viewed through an Austrian perspective, public policy judgments [by Austrians] are hastily rendered and motives easily impugned” and referred to “the Austrian school’s disdain for American foreign policy and willingness to call Lincoln a tyrant.” Austrians should view as troubling the beliefs that: a) our “perspective” involves “hastily rendered” policy judgments; b) our perspective means one needs to impugn the motives of others; and c) Austrian economics requires that one have a particular view on US foreign policy or the Civil War.

When this is what people associate with Austrian economics, we have failed in communicating its basic ideas and we have especially failed in communicating that it is an approach to the study of human action and the social world, not a set of policy conclusions. If we really want to understand the world for the purpose of improving it, we need the ideas of Austrian economics and we do not need to be pushing people away by creating the impression that Austrian economics requires that one believe things (some of which may be perceived as “nutty,” rightly or wrongly) that are not part of that analytical framework.

I would argue that the blame for this situation is two-fold. First, many journalists and commentators either don’t take the time to understand what Austrian economics is really about despite the abundance of high-quality information on the web and/or have their own biases that lead them to accept whatever caricature of Austrians they can find or invent. Second, self-described Austrians bear blame for this situation too by not making clear the distinctions among “Austrian economics,” “libertarianism,” and their particular views on historical or policy issues. The irony is that Austrians historically, and particularly Mises, were very clear about the idea of “value freedom” and the differences between theory and historical application or understanding.

So as a help to those who want a clearer understanding of what Austrian economics IS so as to also help understand what it is NOT, I would suggest a reading of co-blogger Pete Boettke’s entry on “Austrian Economics” at the Concise Encyclopedia of Economics, which is precisely the sort of source that responsible journalists could look at. There, he offers 10 propositions that define Austrian economics. I will list them below, then offer a few comments afterward.

Only individuals choose.

The study of the market order is fundamentally about exchange behavior and the institutions within which exchanges take place.

The “facts” of the social sciences are what people believe and think.

Utility and costs are subjective.

The price system economizes on the information that people need to process in making their decisions.

Private property in the means of production is a necessary condition for rational economic calculation.

The competitive market is a process of entrepreneurial discovery.

Money is nonneutral.

The capital structure consists of heterogeneous goods that have multispecific uses that must be aligned.

Social institutions often are the result of human action, but not of human design.

Pete does a terrific job in explicating these propositions in the linked article, and there’s no need for me to repeat what he has to say. Instead, I just want to point out how each of these is a statement about the nature of the socio-economic world and/or how we should be analyzing it. Not one of them offers a policy conclusion on economic issues or anything else. To repeat: Austrian economics is a set of ideas useful for analyzing and understanding the world; it is not a set of policy conclusions. There are plenty of non-Austrian economists who hold strongly libertarian policy views (e.g., Bryan Caplan) and there are economists who would accept most if not all of the propositions above, but who are not self-described libertarians (e.g., Roger Koppl). And there are plenty of people who believe Lincoln was a tyrant and US foreign policy is an imperialist nightmare who are not Austrians (and there are Austrians who would disagree with both of those claims).

To get from Austrian economics to conclusions on policy, one has to import some basic non-economic beliefs, such as that social cooperation, peace, and prosperity are desirable and that no other values are more important. In addition, making such claims, especially when they rest on historical understanding, also involves the interpretive judgment of the economist in ways that take him beyond Austrian economics strictly speaking. To say something about policy or history requires that the economist use knowledge from other areas and invoke her understanding of history and the actors of the present. Austrian economic theory alone cannot render such policy judgments or provide such historical understanding.

Consider what Mises says about the task of the historian:

In dealing with a historical problem the historian makes use of the knowledge provided by logic, mathematics, the natural sciences, and especially by praxeology. However, the mental tools of these nonhistorical disciplines do not suffice for his task. They are indispensible auxiliaries for him, in themselves they do not make it possible to answer those questions he has to deal with….

He cannot solve this problem on the ground of the theorems provided by all other sciences alone. There always remains at the bottom of each of his problems something which resists analysis at the hand of these teachings of other sciences. It is these individual and unique characteristics of each event which are studied by the understanding. … It is the method which all historians and all other people always appply in commenting upon human events of the past and in forecasting future events. (Human Action pp. 49-50)

Austrian economics (praxeology) has nothing to say in and of itself about issues such as US foreign policy, the Civil War, whether the Federal Reserve System was the product of a secret bankers’ conspiracy, whether the Bush family has ties to the Nazis, whether same-sex marriage should be legalized, whether Israel is a rogue state, whether intellectual property is legitimate, or whether the atomic bombing of Japan was justified. Again, Austrian theoretical ideas will be, of course, of use in our attempts to understand these issues (as Chris Coyne’s work on US foreign policy demonstrates), but there is nothing, repeat, nothing, that “requires” that someone using Austrian ideas take one position or another on those issues. And no position so taken can rightly be described as “the” Austrian view of the issue.

In addition, Austrian economics has nothing to say about “natural rights.” In fact, Mises denied the existence of natural rights and it isn’t clear what use economics of any school is if one prefers natural rights arguments over consequentialist ones.

Austrian economics IS a set of analytical propositions about the world and how to study it. It is NOT a set of policy conclusions or settled interpretations of history. Whatever one’s views on these other issues, it is incumbent upon Austrians to make clear that they are not a necessary component of making use of an Austrian framework for analysis. And if we can do a better job in making that very Misesian distinction clear, we will be even more likely to get our ideas not just heard but accepted by divorcing them from specific positions on issues that have no necessary connection to Austrian economics and frequently drive away those who might otherwise be sympathetic.

Comments

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I completely agree, and consider Boettke's summary close to perfect as a description of what AE is.

It is sad that it is necessary to repeat so often that AE is not an ideology, because it is often difficult to discern the two things in the practice of many internet or media commentators, both pro and contra AE.

Very well stated, Steve. I think focusing on those ten points is also essential for a dialogue between Austrians and other schools of thought in economics. I would suggest that the majority of those points are broadly agreed on, but the minority that aren't are important AND quite reasonable to hold. An Austrian school that focuses on those ten points can discuss the merits of those points with others. An Austrian school that assumes an unfriendliness to liberty or unfriendliness to the market on the part of non-Austrians can't be nearly as productive. It's a good set that Peter offers.

I think someone oughta bring attention to the elephant in the room here: the Mises Institute. There's a fine line between further name-calling and simply noting that a lot of the ideologization, politicization, and hostility perceived to be part and parcel with the Austrian school comes from the Mises Institute. The thing is, they do a lot of good work too in making essential texts available. But the rhetoric, I think, is ultimately damaging to you guys.

Maybe it's not a fight that the hosts of this blog want to pick right now, but I'm sure others are thinking it besides me - so I just wanted to put that out there.

Anyway, this is all good. I blog about the Austrian school and about libertarianism a lot - in many cases agreeing with the different perspective they bring, but often disagreeing. I think I distinguish between libertarians and Austrians fairly well, and I think I note the views of "some Austrians" rather than "Austrian economics", but I'll take this post as an opportunity to pay more attention to the language that I use around that.

I am not an Austrian, because I am not an economist. But am quite sure Larry White is an Austrian, so imagine my surprise when I encountered a discussion on the Mises Institute forum about a week ago with people claiming otherwise. The commentators took exception to White's recent EconStories videos about ABCT where he mentioned the potential problem of an excess demand for money following a bust --apparently that is all it takes to be branded non-Austrian.

Of course, I know the commentators were not serious scholars -- just enthusiastic amateurs (like myself!). But why does Austrian economics attract so many people of this type? Do other schools of economics have the same problem to such an extent?

My impression is that reading Rothbard is very bad for some people. He wrote very well, and made complex topics seem simple. He is exciting to read, for he weaves a good story, full of heroes and villains. Rothbard's passion and rhetoric seems to intoxicate particulars kinds of minds. The effect seems to be overconfidence and righteousness, and a blurring or conscious abolition of Mises's "value freedom". This is not to belittle the real contributions to economic science that Rothbard made, but merely my impression of hoe his works seem to influence some people.

I know it is expensive, but 2 things to keep in mind --- Elgar sells to libraries so fill out the library card at your university and request a copy. And for faculty, I know that Elgar is willing to offer a deep discount for teaching and packaging. So I believe a deal can be worked out if you use both this book along with my older Elgar Companion to Austrian Economics (1994), which is available in paperback. You just have to talk to an editor/representative at Elgar to work out the deal for the packaging.

1. I think other schools of thought have these excitable types, but I'm not sure the school of thought itself inspires them in the same way. There are obnoxious radical leftists that ally themselves with Keynesians, but you cannot read Keynes and have him turn you into an obnoxious radical leftist. As you note, you can read Rothbard and potentially come out an obnoxious libertarian. This is probably less true of Hayek and Mises, although Mises had his share of saber-rattling I believe.

2. On Rothbard's heroes and villains - I couldn't say, but I always think this sort of history is suspicious. History is full of heroism and villany to be sure, but if your history is densely populated with heroes and villains, something is very wrong. I can only think of a handful of true "villains" and at the moment I can't think of any unalloyed "heroes" (although a few come close). People too easily confuse the quality of heroism and villany with its personification.

I was already familiar with Pr Boettke's entry on Austrian economics, but I must admit that I'm wondering whether those ten points are too broad. I feel like the first five point and the last one are generally agreed by economists, though they probably wouldn't word it like that (and as clearly I might add). Isn't the essence of austrian economics really somewhere within points 6 to 9? It feels to me like the gist of Austrian economics is something that would bridge between those 6 more generally agreed points and those 4 decidedly austrian theories.

"In addition, Austrian economics has nothing to say about “natural rights.” In fact, Mises denied the existence of natural rights and it isn’t clear what use economics of any school is if one prefers natural rights arguments over consequentialist ones."

This seems strange. Do you want to suggest that the AE is generally inconsistent with the natural rights position? That you must be a consequentialist in order to be an economist?

More generally, someone said this, not so long ago:

"The term "Austrian economics" has become as much a hindrance to the advancement of thought as a convenient shorthand to signal certain methodological and analytical presumptions..We have always been among those who attempted to offer resistance to this use of the term. It has become evident to us that our efforts have been futile. Rather than resist the pure ideological identification, we are choosing to devote our efforts elsewhere. The name Austrian economics has been lost as a focal point for a tradition of economic scholarship, and is now a focal point for something else. We have to let it go."

I wonder: what has changed in the meantime? Why are you again so eager to define, redefine, polish the thing that has been "lost" anyway? Did your google searches performed in the meantime indicate that the AE included now more references to Mises, "analytical thinker" rather than an "ideological symbol", or that the references to the ABCT do not include anymore crazy anti-Fed talk? I don't quite understand why don't you simply let those crazy anti-government, anti-Lincoln, anti-Fed crackpots to call themselves the "Austrians" and you stick to your "Coordination Problemism" and be happy.

It seems that you are trying again to resist the "ideological identification" instead of "devoting your efforts elsewhere". Should we expect to see renaming of your blog again accordingly?

I think it is important to remember that all the contributors to this blog have read Rothbard indepth and many of us have actually taught him at the undergraduate and graduate level. He was an inspiration to many of us, especially myself.

You rarely find the sort of judgements you are talking about made by individuals with PhD who are in fact active research scholars and teachers. The Austrian school has an internet following and an internet following that buys the most extreme package concerning the school -- which includes the current practice of economics in its entirety. There are, as you say, black hats and white hats. It is the X-files version of economic science. This isn't new to the internet, this has been a problem that plagued Austrian economics during its entire US history. It is just that now with the internet, the costs of being a nut have been lowered because you are not as isolated in your craziness.

I am all for irreverence and feistiness and I am a huge fan of making economics relevant to the real world of public policy. I am an elitist when it comes to fine points of economic theory, but an anti-elitist when it comes to public policy --- and this is a fine line to walk. The more consistent position is that of an elitist across the board (Krugman) or an anti-elitist across the board (e.g., protectionistists). Someone like me ends up praising Krugman when he writes Pop Internationalism, but jeering him when he writes The Return of Depression Economics.

Man, Economy and State is a monumental achievement of synthesis and integration of the existing body of sound economics circa 1960. Points of emphasis will shift over the years, and targets of criticism will change, but the basic argumentative structure in methodology, method, and application are still essentially correct, and the vision remains to me as inspiring today as it was in the late 1970s when I first read it. The question remains for the younger generation of economists to find a way to maintain the irreverence and feistiness of Rothbard, while climbing the academic/professional ladder to make an impact in the way the science of economics progresses and the way the discipline is taught.

It is my contention that this goal --- the professional economics goal of becoming an high impact scholar and a change agent in the teaching of the discipline --- will not result from internet activity and success exclusively, but must be demonstrated in scholarly journal articles, academic books, and the obtainment of faculty positions at the elite departments of economics.

Ultimately, this "end" determines the "means" one will choose. If you think that "end" is impossible to achieve, then you eschew it and pursue a different "end" and with that adopt different "means". If you think that "end" is within your grasp, then you focus on the right "means" to grasp that end and any activity that cuts against that obtainment you view with frustration no matter how fascinating you might find it for some other end.

Steve's point, I take it, is related to Austrian economics as a scientific body of thought, not as a maid-servant to an ideological movement. Menger, Mises, Hayek, and Kirzner are on Steve's side on this as a matter of historical accuracy. But there are Austrians who are focused differently -- namely Rothbard-Hoppe. I propose besides the distinction between academic Austrianism and internet Austrianism, we also make a distinction between the Vienna/LSE/NYU/GMU Austrianism and the Brooklyn/Vegas/Mises Institute branch of Austrianism. The Brooklyn/Vegas/Mises Institute Austrianism is not anti-academic, but it is anti-economics profession to a significant extent. It believes the profession is horribly corrupted and that one must do an end-run around the profession to reclaim the soul of the discipline. But the anti-profession approach finds allies in all those who despise the current practice of economics --- which is why the internet is such an important ally in their struggle for gather support among students and non-academics. Whereas the Vienna/LSE/NYU/GMU branch obviously finds the internet fascinating, but as a lower cost way of making scientific information available to other scientific peers and advanced students. It is a vehicle for advancing a scientific/scholarly movement, not primarily as a vehicle for advancing a broader intellectual/ideological movement.

One final point needs to be recognized --- the role of essays in persuasion. Because of the commitment that economic ideas are policy relevant, there is plenty of examples of even the most austere scholar within Austrian economics (say Kirzner) engaging in essays in persuasion (I personally recommend Kirzner's Freeman essays to anyone ... http://www.thefreemanonline.org/author/Israel%20M.%20Kirzner/

The point to emphasize here is the style and approach taken in these essays in persuasion and to separate these essays from the more scholarly and analytical professional audience work.

Simple advice in writing essays in persuasion while maintaining your scholarly/scientific composure --- don't impugn motives as a starting point; focus on the logic of means/ends analysis; rely on widely accepted 'facts' either as a starting point for refutation by alternative 'facts' or as the basis for reinterpretation; and most importantly don't say anything about your opponent that you wouldn't say if he/she was right there in front of you.

To give a contemporary example -- consider Krugman's ability to talk to his peers in economics now-a-days compared to in the past; look at his 'review' of Rajan's Fault Lines, and then Rajan's response on his webpage at Chicago. Krugman writes essays in persuasion now-a-days, but they fail to engage his scientific peers because he is irresponsible. We want to avoid that trap as well in our writing. And if someone as smart as Paul Krugman and as gifted a writer, falls prey to this trap, you know it is a difficult one to avoid. I think what Steve is trying to clarify is that many in the so-called Austrian school don't only fail to avoid the trap, they endorse the trap as a style of writing and call it the Austrian approach.

There is a story floating around the net that Mises walked out of a Montpelier meeting and called everyone there a socialist, including Hayek. The problem is in separating Austrian econ from the logical policy implications. It's pretty hard to do in real life. If Austrian econ is correct, it logically leads to very specific policy recommendations. It's no accident that Ron Paul and others base their ideology on Austrian economics.

At the same time, it would be really nice if journalists were intelligent and honest, but they're not. They will use any distortion and lie that fits their purpose. We can't prevent that. Welcome to the world of politics, which has a strong resemblance to Alice's Wonderland.

You make some very nice and necessary points, Steve. I do have a problem with Pete's list of defining characteristics of the Austrian school, however. It seems all too general and not very specific at all. For instance, why isn't the fact that we study human *action*, a definition of action, or implications of action part of the propositions? After all, it is through the view of individuals as actors that we get many of the Austrian insights on subjectivity, time, etc. Also, from our view of action comes the very Austrian method--but in the propositions it seems any method (or *no*--as in "lack of--method) is as good for Austrian analysis. I don't see how that could be the case, even if we were not to accept the Mengerian method elaborated and perfected (?) by Mises at face value. Surely a school of thought must have and make use of a scientific method?

Look at the list again --- only individuals choose. Doesn't that capture your point about human action. Also, the proposition about the facts of the social sciences --- that certainly has implications for methodology. So right there, we just eliminated excess aggregation, and the idea that facts are disembodied and abstract. We have methodological individuals and knowledge from within. And that is before I even get to more analytical points about market process, capital structure, nature of money, etc.

This is not about a lack of method, it is about a very specific methodology and method of analysis that was championed by Mises/Hayek/Kirzner. Sorry if that didn't come across clearly enough.

To Pietro --- yes, Mises did call them socialists, but the policy being discussed by the individuals in question was in fact a socialistic policy -- 100% inheritance tax. I suggest everyone counter-balance this story with (a) the facts of the discussion, and (b) Hayek's correspondence with Michael Polanyi who left MPS because of the harshness of MIses's positions. Hayek agrees with Polanyi that Mises states his position in harsh and biting language, but concludes that Mises was right on his position.

Based on my admittedly limited knowledge of Austrian economics (in contrast to my training in the mainstream, neoclassical method), I would also add that Austrian economics believes that structural econometric parameters are too unstable to estimate or exploit for any policy intervention.

I find your comments about Rothbard as an economist rather revealing of your ignorance regarding Rothbard's works and contributions to the science of economics. I believe you have honestly acknowledged this "ignorance" before here so it is rather curious that you should take such strong views on the matter.

Peter Boettke,

I am curious what works in particular on economic science by Rothbard do not constitute what would be considered by you "economic science of thought"? This is a serious question because it seems that people here are condemning Rothbard's economics on nothing more then that they don't like Rothbard's philosophy. Can one not be both an economist and a philosopher? Can one not be both a great economist and a political scientist? Is it not possible, for example, to apply economics within the field of political science?

@Pete: I have a problem with the word "choose," since what is studied in mainstream economics is choices based on solving optimization problems but free from action. One can make choices about anything without spending time or resources on actually trying to achieve something. That's why I asked about the lack of action (the concept, not the word) in the propositions. Action is so much more than choice, and it is a very important core concept for us Austrians.

@Roger: I guess I wasn't clear enough in my statement; I wasn't asking for a mention of *the* Austrian method. What I asked for was some kind of mention about what method(s) is (are) implied by the very Austrian view of action as the basic component for economic analysis. *Especially* since the concept of action, in my view, isn't clearly present in Pete's propositions of what defines the Austrian school of economics.

But my mistake aside, I still think you are wrong in your statement that it is possible to "apply [one's] mind" scientifically without a method to help guide in finding or identifying right from wrong (i.e., truth from untruth). A scientific method is necessary to (1) analyze a problem and to (2) evaluate one's results (conclusions, solutions) in the theorizing or empirical testing of hypotheses. A blind and inductive (but I repeat myself) approach to science is completely worthless, since one cannot make statements with any estimation of whether they are true or not. Scientific methods may not give us The Truth (as we're not omniscient), but the lack of method makes but a bunch of opinions of scientific study.

A particularly egregious example of this is in David Colander's macro textbook when he briefly mentions Austrians and says they're in favor of drug legalization. It's a pretty naked attempt to make Austrian economics appear kooky by pointing to a belief at most indirectly related to Austrianism per se, and certainly irrelevant to Austrian macro.

As for Steve's points about natural rights--though I'm not in that camp myself--some rights theorists have at least claimed to derive important insights from economics. Nozick is the most obvious example, going from natural rights to justifying a minimal state through economics. And Lomasky, who wants to drop the "natural" qualifier but is otherwise on board, uses economics to flesh out the space of individual rights. Economics is usually used in such exercises to explain why individuals have reason to accept the rights claims of others. One could even count Buchanan (a strict philosophical voluntarist) in this camp. Whether these arguments are convincing may be beside the point, but sophisticated rights theorists have certainly understood themselves as relying on economics or rational choice theory. It stands to reason one could rely on specifically Austrian microfoundations in making similar arguments.

If I may emphasize, too, that even Mises -- however strongly he felt as a classical liberal on a wide variety of policy issues -- always tried to make clear that economic theory and public policy were two distinct and different things.

In 1932, in a debate over the causes of the economic crisis in the pages of a German-language economic journal, he went out of his way to say:

"I am an economist, not a preacher of morality who wishes to judge, avenge, or punish. I do not look for guilt parties but for causal connections. And if I speak of interventionism, I am not making accusations against the 'state' or against 'labor.' I only attempt to point out to what consequences a system, a policy, an ideology must necessarily lead."

In the German-speaking academic world between the two World Wars, Mises was one of the most adamant supporters of Max Weber's argument for "value-freedom" in social analysis (against the highly "value-laden" views of members of the German Historical School).

And earlier, in 1889, Carl Menger was very forceful in stating:

"It is the task of science to be concerned solely with fact and not with value. Science has to teach us what has been, what is, and how what is has come to be; but not what ought to be"

This is a very clear emphasize on the difference between the "positive" statements of economic theory and the "normative" preferences expressed in an economic policy. And Menger, too, clearly had many of the German Historical School members in mind.

I should also mention that there have been "leftists" among the Austrian School. Paul N. Rosenstein-Rodan, was a prominent member of the Austrian School in the late 1920s and early 1930s, who was already sympathetic to socialist policies, and later developed the idea of government-planned "balanced growth" for underdeveloped nations.

There were a variety of British socialists who, at first, adopted Hayek's theory of the trade cycle, and drew their own policy conclusions from the analysis (different from, say, Hayek's or Lionel Robbins, at the time).

These British socialist "Austrians" included E. F. M. Durbin and H. T. Gaitskell, both of whom became prominent members of the British Labor Party leadership. M. A. Abrams wrote a very clear exposition of Hayek's ideas on the structure of production, the problems with price level stabilization, and the distorting affects from interest rate and monetary manipulation in 1934, called "Money and a Changing Civilization." The concluding chapter proposes that the only "solution" to the business cycle, therefore, is government nationalization of banking!

Recent biographical studies of Oskar Morgenstern have bought out the extent to which he worked with and proposed policies for and compatible with the authoritarian and fascist-oriented government of Austria from 1934 to 1938, before the annexation of the country in to Nazi Germany.

And this does not even mention Hans Mayer (senior economics professor at the University of Vienna and protegee of Friedich von Wieser) for his notorious collaboration with the Nazi regime beginning in 1938. Including an address published in "Weltwirtschaftsliche Archiv" in March 1939, arguing the compatibility of Austrian Economics with National Socialist ideology, and making Austrian Economics serve the goals of Germany's "new order." ("My Fuhrer, I can walk!" -- for those who remember the movie,"Dr. Strangelove.")

Given certain normative views -- the value of individual freedom, the desirability of consumer-oriented wealth-generating production and improvements in standards of living, a focus on longer-run implications and consequences from policies vs. a more narrow attention to the immediate or "short-run" impact from a policy, etc. -- Austrian conceptions of and insights about imperfect and decentralized human knowledge, competition as a "discovery procedure," the nature and significance of "economic calculation" for market-oriented decision-making, the role and place of the entrepreneur in market discovery and coordination, and so on, easily leads to certain policy conclusions and criticisms of "activist" and interventionist government.

But . . . nonetheless, conceptually and logically, Austrian Economics remains, and should (must) remain distinct and separate from the issue and problem of policy values, beliefs, and attitudes.

Otherwise, in economics (including Austrian Economics), as in any field of scientific understanding, there runs the risk of a dangerous blurring of the essential distinction between "fact" and "value."

Your comments seem to suggest that there is some one method or some limited set of methods that can be somehow inferred (by logical deduction?) from "the very Austrian view of action." Is that it? Setting the question of whether there is but one "Austrian view of action," please tell me what you make of Gode and Sunder's famous 1993 JPE paper given your "Austrian view of action." Is their paper "economic analysis"? If we think their 1993 paper commits no particular methodological sin, then what boots it to work out the supposed implications of "the very Austrian view of action"? If you banish their paper as unclean and taboo, how do avoid the charge that you are not willing to judge arguments on their own merits?

Of course Steve is correct. A nice encapsulation. However, the people who are likely to read this blog are not the one's causing the problem. The higher profile Austrian economics is receiving - to which Steve referred - is precisely in regard to policy issues. The audience now reading about Austrian economics for the first time could care less about the careful articulation of a value-free set of foundational principles. They are interested in Austrian economics because it appears to successfully question the conventional wisdom of current economic policies - echoes of Hayek v. Keynes. And it is this they need to be put straight on.

I suggest the following principles:
1. Austrians believe in the basic stability of the market - including financial markets. This does NOT mean they deny the likelihood of fluctuations in economic activity. They are non-utopian. They believe that the market is the by far the best system we can get and that hubristic attempts to "manage the market" greatly exacerbate cycles and sometimes cause them. So the first point is that one has to shift the burden of proof. The default is "the market is stable and self correcting." Important concepts here are "knowledge problems" and "incentive problems."

2. Austrians believe that the use of economic aggregates is misleading. Economic cycles involve inter-sectoral imbalances - "distortions" in the productive structure of the economy. This is easily understood. The housing market was bloated by injudicious monetary and financial policies. There will be no cure without a fundamental restructuring. Same with China's bloated manufacturing-export sector - financed by their lending to us through the purchase of U.S. Treasury bonds. Boosting aggregate demand does not address sectoral (microeconomic) distortions.

3.Similar considerations apply to all government initiatives, like Obamacare, educational reform etc.

Intelligent non-economist readers can understand and relate to this. Point 2 is especially "Austrian." The problem of being mixed in with other "libertarian" types is real - but is best addressed by explaining how Austrians address the issues - for example Austrians are not "social conservatives" or simple monetarists and this shows in the policy implications of their principles.

'Steve's point, I take it, is related to Austrian economics as a scientific body of thought, not as a maid-servant to an ideological movement. Menger, Mises, Hayek, and Kirzner are on Steve's side on this as a matter of historical accuracy. But there are Austrians who are focused differently -- namely Rothbard-Hoppe. I propose besides the distinction between academic Austrianism and internet Austrianism, we also make a distinction between the Vienna/LSE/NYU/GMU Austrianism and the Brooklyn/Vegas/Mises Institute branch of Austrianism.'

There you go again. Again the same garbage about you and Steve and your ilk as the only legitimate heirs of Menger, Bohm Bawerk and Mises, and Rothbard and his followers as being outside your "mainstream".

On Peter Lewin's first principle, Austrians can make common cause with many others regarding the ability of a government or a central bank to "manage the market." The idea that the Fed could, much less should, assure full employment exemplifies the fatal conceit.

I don't disagree with this at all, but I think that you're ignoring, or at least forgetting, one more important reason: mainstream neoclassicism openly endorses certain "policy recommendations." In fact, mainstream textbooks often have entire sections devoted solely to "appropriate policy recommendations." This is quite ironic, considering the fact that they're the ones who often accuse Austrian's of conflating normative value judgments with positive economic analysis. The result is that many in the media, especially clueless reporters, believe that all schools of thought focus on "appropriate policy recommendations," or at least include it in their analysis.

2. Most mainstream textbooks also take pains to highlight distinctions between normative and positive economics. It seems to me the clear distinction is what is emerging as the important element here, not that economists themselves (Austrians or otherwise) be value-free.

3. Often I think what you call "policy recommendations" are presented more as "policy implications" (which is part of the reason why I ask you for specific examples). An implication of the Austrian school is that monetary stimulus will introduce intertemporal discoordination in the structure of production. An implication of Keyensianism is that fiscal policy can improve the economy when demand is weak. These aren't really "recommendations" unless textbooks are teaching that "the good government" would do X in recognition of these implications. Needless to say, I haven't come across that framing of the issue in any of my studies that I can remember.

I didn't take any "strong view". The paragraph you responded to began with the words "My impression" (which normally connotes a tentative position), and then it ended with the statement: "This is not to belittle the real contributions to economic science that Rothbard made, but merely my impression of how his works seem to influence some people." My comments were not about Rothbard the economist, but Rothbard the rhetorician, and the peculiar effect the latter has on some people.

Medical researchers do not adopt the germ's point of view. They take it for granted that human health is good and desirable, while human death and disease are bad and undesirable. No one thinks medical science is therefore partisan pleading or anything other than perfectly "scientific" and "objective." It is the same with economics. The presumption that human flourishing is good and desirable is logically separable from economic analysis, but generally uncontroversial. I think there are two reasons this humble point is hard to grasp in the case of economics. First, we must admit that a lot of economics is written for partisan purposes; it is partisan pleading masquerading as objective science. Of course such pleading can be found on all sides and is not the special sin of any particular school of thought or political party. Second, economics is about our behavior and many of us are used to judging all behavior as good or bad. Thus, we somehow have a hard time disentangling scientific judgment from moral judgment.

How our theoretical understanding has led us to consider how the world works certainly leads us to see some methods (policies) as more likely to "solve" what someone considers to be a problem.

If you consider that chest pains may be an indication of a heart-attack, you proceed to look for a different "cure" than if you think the pain has been caused by a witchdoctor placing a stone on the chest of a doll representing the person experiencing the pain.

A Keynesian who has a theoretical conception of the "economy as a whole" in the form of aggregate demand and supply curves, sees the likely cause for economy-wide fluctuations and periods of unemployment differently than if, as most Austrians do (and as reflected in one of Peter Lewin's points, above) you see the economy as a complex network of "micro" market processes interconnected through structures of relative prices and wages, including intertemporal relationships.

Thus, the analytical pair of glasses through which the economist sees the world invariably influences what might be seen as possible "causes" and "cures" (given certain normative assumptions about "good," "better," and "desirable") for things happening in the market.

The basis of these difference are not, per se, "value" or normative differences, but more "factual" questions about "how markets work." These are "fact" or "is" questions, separate from "ought" issues.

Indeed, even some disputes among Austrians about monetary policy issues have part of their origin in different conceptions of the nature and workings of the monetary system. (For example, what is the meaning of "monetary equilibrium"?)

Thus, when some Austrians seem to argue that they consider "other" Austrians to be "inflationist" (or "re-flationist") in terms of changes in the demand for money, this is partly arising from conceptual differences about what "equilibrium" may or may not mean in a money-using economy. These are theoretical differences logically separate from any policy conclusions.

Regarding who's to blame for the perception of Austrian Economics as being more or less libertarian I would point to Rothbard.

Reading MES I got tired that Rothbard mixed his political convictions into his economic writings - especially the footnote where he explains why he uses the term 'total social income'.
Honestly, this political self-righteousness blurs what the 'analytical framework' of AE really is and makes it harder to convince moderates of the relevance of the theories.

Read the entire post if you care to --- there is an explicit rejection of the "profession" by Rothbard/Hoppe/Salerno as corrupting and intellectually bankrupt. They are explicitly trying to create an alternative culture of economic learning. Salerno has actually written against viewing economics as a vocation.

Say whatever you want, but the differences are clear on this issue. As I have said many times, my goal is not to edit the RAE, but the AER. My goal is not to influence the conversation on The Coordination Problem but the conversation at Harvard, Princeton, Chicago, MIT and Stanford. This is why I say my efforts to date have "failed" and that I need (and those associated with me) to work much harder and much smarter to do high quality research in economics that through the force of argument eventually persuades our scientific peers. It is this message that I want to inspire students with --- and to which I use the examples of Mises and Hayek (not as martyrs) but as men of great scientific accomplishment who achieved recognized greatness with their work and were appropriately honored. Martyrs don't win the Nobel, nor do they get named Distinguished Fellows by the AEA. Martyrs don't get the Presidential Medal of Freedom, nor do they win the highest scientific medal of achievement from Austria. Mises and Hayek were intellectually BRAVE men, and they were steadfast in a world turned upside down. But they were men of great accomplishment. We need to recognize the accomplishments and strive to build on that and to honor their intellectual endowment that they have bequeathed to us scientifically.

Obviously people can disagree about how they are going to do that. But I am being explicit -- I am trying to do that within the boundaries of the economics profession as it is currently structured (and will continue to be structured for the conceivable future). I am trying, I am not yet winning, but I am picking myself up and keep trying to improve. Hopefully, I will keep trying to the day I no longer am breathing, and hopefully one of my students will succeed where I have failed and they will inspire others to keep trying and still others. And the ideas of Mises and Hayek will not only reflect the mainline of teaching of economics from Adam Smith to them, but also the mainstream of economic thought throughout the world. It is a scientific revolution we are after first and foremost, followed by a change in the public ideology and ultimately in public policy. Not the other way around (which in my study of history would only produce a shift in rhetoric not in actual action).

"Macroeconomics," 6th edition, N. Gregory Mankiw, specifically part 5 (Macroeconomic Policy Debates). Here are a few of the key questions that he investigates:

1. Should policy be active of passive?
2. How should policymakers try to promote growth in the economy's natural level of output?
3. Should policy makers try to stabilize the economy?
4. How big a problem are government budget deficits?

He takes as given a certain set of assumptions that are highly debatable, which have been debated for hundreds of years. The question is not, "should the government interfere with economic activity," but rather, "how should the government interfere with economic variables and phenomena." The positive/normative distinction, that they continuously stress, become increasingly vague. And again, this is Mankiw, a relatively liberal economist (in the classical sense).

Of course, this is glaringly obvious to anyone who has ever taken a course in monetary theory and banking, especially when it comes to the Federal Reserve. Entire sections are devoted to how the government should centrally plan the monetary system:

1. Should they target interest rates?
2. Should they target the money supply?
3. Should they have a single mandate of price stability, or should they have multiple mandates (full employment consistent with moderate inflation, financial stability, etc)?
4. The Taylor Rule and an implicit nominal anchor.

The Federal Reserve isn't a market institution at all; it's a political one. Now, the Austrians reveal the implications and potential consequences of monetary central planning, but this is radically different from giving "policy advice."

Rothbard has certainly managed to get more people to read Hayek and Mises then you or anyone here would ever dream off. In fact, even Ron Paul probably deserves more credit for that then you or anyone here. Mises and Hayek are selling like cup cakes over at the Mises Institute, and no, this "revolution" is not skipping over the next generation of economists.

So it seems that Rothbard (and his gang) have basically already figured out how to achieve your precise goals.

The specific footnote is No. 12 on page 777 of the Scholars Ed. by LvMI, which states:
"The term generally used is “national” income. However, in a free-market economy the nation will no more be an important economic boundary than the village or region. It is more convenient, then, to set aside regional problems for other analysis and to concentrate on aggregate social income; this is especially true since regions do not present a problem to economic theory until their governments begin intervening in the free market."

In all of this we cannot forget that the non-mathematical mode of presentation of Austrian economics encourages all sorts of ignorant types to call themselves Austrians. They think they are experts in economics and a motivated by true belief in a political doctrine. In an important sense, Austrians need "barriers to entry."

"Say whatever you want, but the differences are clear on this issue. As I have said many times, my goal is not to edit the RAE, but the AER. My goal is not to influence the conversation on The Coordination Problem but the conversation at Harvard, Princeton, Chicago, MIT and Stanford. This is why I say my efforts to date have 'failed' and that I need (and those associated with me) to work much harder and much smarter to do high quality research in economics that through the force of argument eventually persuades our scientific peers. It is this message that I want to inspire students with --- and to which I use the examples of Mises and Hayek (not as martyrs) but as men of great scientific accomplishment who achieved recognized greatness with their work and were appropriately honored. Martyrs don't win the Nobel, nor do they get named Distinguished Fellows by the AEA. Martyrs don't get the Presidential Medal of Freedom, nor do they win the highest scientific medal of achievement from Austria. Mises and Hayek were intellectually BRAVE men, and they were steadfast in a world turned upside down. But they were men of great accomplishment. We need to recognize the accomplishments and strive to build on that and to honor their intellectual endowment that they have bequeathed to us scientifically."

Your comment is absurd. As if the average e-Keynesian or e-Marxian is familiar with formal economic modeling, or dynamic production functions, or Leontief input-output models, or whatever. And what would you suggest, Dr. Rizzo? Should Austrian economists litter their papers with differential equations in order to prevent "ignorant types" from reading them? Does the mainstream have an advantage because they spend 3-4 hours, or 2-3 classes, explaining just inter-temporal choice? Or do they have an advantage because Austrian economists haven't made any significant theoretical contributions since Kirzner and Lachmann? I think Austrian economists, actual Austrian economists, should be less worried about e-Rothbardians.

I have met numerous individuals who claim to be "Austrian economists" but who seem to have derived their entire economics education from a Reader's Digest summary of Rothbard. Their hobby seems to be driving people out of the libertarian movement.

I see this has developed into a great debate; too bad I missed the bulk of it (so far). I still wish to respond to Roger Koppl's misinterpretation of my comments, however.

I wasn't suggesting that there is necessarily One Method, but I'm saying that there should be several methods and methodologies that are not compatible with studying action. For instance, it would be impossible to force the concept of action (as purposive, time-"consuming" behavior toward a subjectively valued end) into a framework of comparative statics. There is no (and cannot be any) time in the solution of simultaneous (mathematical) equations, and therefore there cannot be action.

There can, however, which was my other point, be *choice*, since choice doesn't necessarily imply uncertainty, time, capital, etc. (This is, as I explained above, part of the reason I don't buy Pete's propositions.)

I'm not going to read individual articles to give my view of whether they are Austrian. Frankly, I find that type of argument a bit puerile. Austrian economics is not what *I* say it is, but the economic analysis done in the tradition of Carl Menger and those following his "lead." Obviously, the method developed by Menger and further elaborated by Mises must be *an* Austrian method--dismissing it as non-Austrian (or of no value) wouldn't cut it.

There may be other methods as well, but one would need to show *how* they are Austrian in order to accept them as such. I don't see how injecting some Austrian buzz words would make anything Austrian; it would need to be Austrian in a much deeper or fundamental sense than simply mentioning "subjective" or "knowledge" or "action" or whatever.

In order to avoid further misinterpretations, please allow me to emphasize that I'm not saying that there is and can only be only one method that is Austrian (or "purely" Austrian). I'm but saying that in the study of action, certain methods must be ruled out.

"[...] and no, this 'revolution' is not skipping over the next generation of economists."

I don't know. My own biased and unrepresentative sample of experience suggests that a lot of students start with this "revolution", because it's a quite an exciting journey through this literature when you're economically virgin and you're looking for easy rebuttals to the stuff you learn in undergraduate macro, mathematic intensive micro, etc. And the most politically incorrect and polemic stuff really is stimulating for a while. But then they eventually move on to something else, for better or for worse. There are a number of reasons for this and many are directly or indirectly linked to Peter Boettke's earlier comment on being inside or outside the profession.

You had said, "What I asked for was some kind of mention about what method(s) is (are) implied by the very Austrian view of action as the basic component for economic analysis." Thus, I imagined the issue was something about what counted a "economic analysis" or, perhaps, good economic analysis. Your latest response seems to be about what counts as "Austrian" economics. Apparently, I don't understand what the universe of discourse is here. Well, I guess I'll leave it alone and just dogmatically restate my aversion to methodological diktat.

Presumably, you will protest that you have not expressed any wish to impose any set of methods on others. I accept that claim, but protest that I, then, literally do not know what you have been trying to say. Somehow the word "action" is very important. Somehow "action" is not "choice" and Pete Boettke is to be criticized for neglecting this distinction. I had the idea that you linked this distinction to some idea of what is methodologically acceptable for "economic analysis." Now it looks more like you are linking it to a definition of what counts as "Austrian economics." I guess that could be sensible if I knew how to distinguish "action" and "choice." FWIW, however, I prefer to see "Austrian" economics as a tradition of thought embracing a variety of perspectives. Basically, I think of it as the the Mises Circle and what descended from that. When it comes to methods, let a hundred flowers bloom.

My point is that people err in thinking that because there is "no math" that there are no prerequisites to understanding Austrian texts and claims. And that furthermore any undergraduate can be an "Austrian economist."

My point about erecting entry barriers is partly facetious. I certainly do not advocate changing the Austrian method to keep the ignorant out. But it is important to recognize some degree of "authority" to speak on these matters. If this sounds snobbish then tell me what you look for in a medical doctor.

Because, Rothbards footnote-dissolving of the nation is, as he writes himself, based on the premise of his idea of the free market economy.
It's not that I necessarily believe Rothbard is wrong, it is merely that I believe he should separate his preachings about the free market and his writings on economic subjects.

On another note, I believe Rothbard in the mentioned footnote dismisses the importance of regions a bit too lightly, but that is another debate.

John Voigt -
OK, but note you're quoting from Mankiw's "unresolved questions of macroeconomics" section, not from his "most important lessons of macroeconomics" section.

The concern should not be over "are these questions worth asking"? Of course they are. What we should be concerned about is someone who says "economic science says we should do X". That claim is extremely problematic.

I don't have Mankiw's text sitting in front of me, but I highly doubt he says "Economic theory says we should do X". He may very well say "Economic theory says by doing X we can expect to see Y: do you think that is a good idea?". Who cares? That's a fine line of inquiry for me.

John Voigt -
You write: "The question is not, "should the government interfere with economic activity," but rather, "how should the government interfere with economic variables and phenomena.""

I'm not sure what your point is - the second question is simply a more general version of the first, isn't it? If the answer to the first question is "no", then the answer to the second question is presumably "they shouldn't". I think you're getting too worked up over the simple fact that there are long-standing (and in my opinion, often more interesting) disagreements between people who do think the government has a role to play in the economy in addition to the disagreement between libertarians and non-libertarians.

No, you're right. He doesn't say "we should do x." Rather, he lists the various normative positions of many different mainstream economists, their justifications, and then he lets the student decide. Either way, I just think it's somewhat humorous that there are entire sections devoted solely to explaining how the government should plan the monetary system, for example.

John Voigt -
I'm finding your position harder and harder to understand. Are you saying that there should be no discussion of normative economics? That economists themselves should be value-free? If you are arguing that then I disagree with you, and I suppose Mankiw and countless others would provide good examples of economics professors and texts doing and talking about normative economics.

I thought the concern was over distinguishing between positive and normative economics - I think for the most part professors and texts I'm familiar with have done a decent job at this, although they clearly have normative positions as well. The concern here, I think, is in casual media/internet/social/political conversations where the normative and the positive are blended more freely. Steve thinks this blending and lack of a distinction is problematic and I agree. But I don't think that's the same saying "normative positions are bad".

If your concern is simply that free banking or de-nationalized money hasn't convinced a lot of people, I suppose that might be disconcerting for people from certain perspectives. I'm not sure what's humorous about that, though. That'll happen. Everyone's bound to find themselves in the minority position on one point or another.

John Voigt: Yes, I'm afraid Dan Kuehn is what we might call an "edge troll." He carefully avoids full-on troll status while doing his utmost within that constraint to provoke others, normally by misconstruing the plain meaning of their posts or comments. Best not to engage.

Roger Koppl: "Somehow 'action' is not 'choice' and Pete Boettke is to be criticized for neglecting this distinction. I had the idea that you linked this distinction to some idea of what is methodologically acceptable for 'economic analysis.' Now it looks more like you are linking it to a definition of what counts as 'Austrian economics.' I guess that could be sensible if I knew how to distinguish 'action' and 'choice'."

Actually, Roger, I believe I've been saying the same thing all along. The difference is that you seem to read things into what I write that isn't there. There are only two points I've been making.

First, that the concept of "action" is mysteriously missing from how Pete defines Austrian economics. (Menger and) Mises seemed to think it was a big deal, and I would agree on this point. Getting rid of "action" and instead saying that market actors "choose" changes things quite drastically; suddenly it is not the fact that people act, or what this implies or what arises from this fact (spontaneously or otherwise), that is of importance, but that there is an individual who makes a choice. Well, there is a difference between acting and choosing. This is how Merriam Webster defines the words:

Action
an act of will; a thing done; the accomplishment of a thing usually over a period of time, in stages, or with the possibility of repetition

Choice
the act of choosing: selection; care in selecting

The latter does not imply the former, but the former implies some version of the latter. So, in your words, action is choice (and more) but choice is not action.

Doing away with "action" for the sake of "choosing"/selecting automatically does away with a lot of the "meat" that is necessarily part of the concept of action. For instance, choosing does not imply any kind of technological knowledge or the passing of time, whereas action necessarily implies both.

Second, that there is no reference at all in the propositions about method[ology]. So I guess Austrian economics cannot be identified in how Austrians reason, how they do research, or how they go about trying to understand phenomena. Then how do you distinguish Austrian economics from other kinds? Or must we conclude that *everything* is always Austrian--then what's the point of calling yourself "Austrian"?

I have no problem with competition, so fine: let a "thousand" methods bloom. But does that mean that Austrians believe that "anything goes"? If that is the case, then there is no way of distinguishing science from opinion or an incomprehensible mass of meaningless words. So why would anybody publish your (our) articles? Why should I take what you say seriously? (And why do you keep debating this issue?)

I find both of these points essential and fundamental to what is Austrian economics. Yet both are mysteriously missing from Pete's propositions. Fine, he (and you) might not agree with them, but the questions I pose above still need answering if there is such a thing as Austrian economics.

What's confusing exactly? I initially said that mainstream neoclassical economists openly endorse certain policy recommendations, and, in fact, devote entire sections of textbooks solely to "normative economics" (which may be a contradiction in itself). You then asked for an example, and I gave you one (a major one). Students, across the country, are introduced to the opinions of certain (a select few) economists about what the government should do, how it should intervene in the economy.

"If your concern is simply that free banking or de-nationalized money hasn't convinced a lot of people, I suppose that might be disconcerting for people from certain perspectives. I'm not sure what's humorous about that, though."

This is not my position at all, though I obviously oppose monetary central planning. The point is, again, that mainstream neoclassical textbooks take the existence of central banks as the ultimate given, and then go on to explain all of the various normative positions of mainstream economists regarding how the government should plan the monetary system. And, at the same time, they continuously stress the normative-positive distinction and its importance, while criticizing Austrian's for allegedly conflating the two.

I contend that the Austrian's don't do this anymore than the neoclassical's do. So again, I don't believe that economists shouldn't have normative judgments/positions (I don't know how where you got this idea from). I just don't think that they necessarily belong in major economics texts, which should be relatively noncontroversial (or, if you're going to include a normative section, you should include a broader spectrum of ideas--but this is entirely unnecessary).

What's confusing exactly? I initially said that mainstream neoclassical economists openly endorse certain policy recommendations, and, in fact, devote entire sections of textbooks solely to "normative economics" (which may be a contradiction in itself). You then asked for an example, and I gave you one (a major one). Students, across the country, are introduced to the opinions of certain (a select few) economists about what the government should do, how it should intervene in the economy.

"If your concern is simply that free banking or de-nationalized money hasn't convinced a lot of people, I suppose that might be disconcerting for people from certain perspectives. I'm not sure what's humorous about that, though."

This is not my position at all, though I obviously oppose monetary central planning. The point is, again, that mainstream neoclassical textbooks take the existence of central banks as the ultimate given, and then go on to explain all of the various normative positions of mainstream economists regarding how the government should plan the monetary system. And, at the same time, they continuously stress the normative-positive distinction and its importance, while criticizing Austrian's for allegedly conflating the two.

I contend that the Austrian's don't do this any more than the neoclassical's do. So again, I don't believe that economists shouldn't have normative judgments/positions (I don't know how where you got this idea from). I just don't think that they necessarily belong in major economics texts, which should be relatively noncontroversial (or, if you're going to include a normative section, you should include a broader spectrum of ideas--but this is entirely unnecessary).

I couldn't agree more. My reading of Austrian Economics is basically Economics in One Lesson.I have read the Fatal Conceit and Road to Serfdom. But is the Fatal Conceit really Austrian Econ (RTS is not)? I doubt it. Actually no. I have also read parts of Human Action and all of the MES Study Guide by Robert Murphy. Excellent read by itself, BTW. Plenty to absorb for the casual reader. Beyond that, many videos of classes at Mises.org have served as interesting seminars of sorts. I thank Salerno, Peter Klein et al.

But I would feel foolish to call myself an "Austrian" based on that and would never.

That being said, try empathizing with my position when the majority of your unadulterated economic foundation came from what is listed above as you encounter statements, arguments and assertions from popular Keynesian bloggers. On the one hand, you are at a loss to understand where they are coming from and find their analytical framework preposterous and lazy. OTOH, you are shy to really say much because you have the where-with-all to know you're no economist. A layman's understanding only goes so far. It's tough to articulate beyond the basics.

But back to my basic point, which I haven't really explained. Most of the individuals in the media have extremely limited exposure to economic theory (out-dated economic theory). What really sticks, and this is just an empirical observation (based on my experiences with friends and watching CNBC), are the normative judgments they were exposed to.

During a recession, they were told, you must (1) stimulate aggregate demand, engage in deficit spending, and reduce interest rates (Keynes), or (2) prevent a banking/liquidity crises, and prevent cash holdings from falling too dramatically (Friedman). When they ask for the typical Austrian normative position, namely do nothing and allow the economy to re-adjust the "structure of production," they're left scratching their heads. In other words, they're looking for some sort of action; the idea that "we must do something" is very powerful.

1. Mainstream neoclassical economists claim that they adhere to a strict normative-positive distinction, but in reality they don’t.

2. Individuals expect economists to have prescriptive solutions. They want to be told what they should do in order to remedy or improve the current state of things.

3. The typical Austrian normative response is essentially do nothing (in a free-banking system, they assert that the elevated demand for money will be satiated by a corresponding increase in the supply of money, preventing inter-temporal disequilibrium). In other words, the Austrians really don’t have one, or one that’s seen as acceptable.

4. Thus, pundits and those in the media, in an attempt to “classify” Austrian economics, attach the laissez-faire/libertarian label, and all of its connotations (and therefore dismiss the actual theoretical framework, or strawman it).

@Roger: Right, and I would guess "homo chooser" fits in-between acting man and the Robbinsian maximizer. Perhaps as a more elaborate optimizing actor in the modern neoclassical framework (maybe with bounded rationality, added risk, etc.).

Just a heads up to note that I have deleted several of john v's comments. FWIW, Daniel Kuehn is not a troll, nor will I let the attacks on him continue. Normally I would email someone before just deleting posts, but since john v has no email link, that wasn't possible.

Consider yourself warned for personal attacks on other posters john.

And for Roger K: Daniel has a paper forthcoming in the RAE. Now that does not automatically disqualify someone from troll (or edge troll) status, but it does suggest that he might have something serious to contribute to the conversation.

I haven't seen anything from Daniel that constitutes trolling. If you folks can't stand being pushed back at, then either ignore him or give him a serious answer, but let's lay off the other stuff.

You raise a good criticism -- thank you. I thought one would read into the emphasis on methodological individualism, subjectivism and exchange the Misesian position. But your reading makes me realize that leaving the Misesian notion of action was a mistake. I will put up a blog post in a day or two about this point you raise. But let me state that I am definitely in your camp on the importance of action as opposed to constrained optimization.

John Voigt -
You had originally said "mainstream neoclassicism openly endorses certain "policy recommendations."", which sounded to me like you thought mainstream neoclassicism didn't distinguish between normative and positive economics (essentially the distinction that Steve wants to keep strong for Austrians). I'm still not exactly sure what you're concerned about in the examples you gave - I don't think and I don't think anyone has claimed that the solution is to abandon normative positions. The point is to differentiate them from positive ones. If you agree on that, that's great. That's all I'll say on that because clearly some people are getting bent out of shape over me.

I agree with you on the relative lack of education in the media. I'm not sure I would point to their use of Keynesian or monetarist assumptions as evidence of poor education as you do - what I would point to is the (1.) poorly executed justification/argumentation from Keynesian or monetarist assumptions, and (2.) as you say, relative ignorance of Austrian as well as other schools of thought. In other words, I wouldn't say "the media goes to stimulus so they're undereducated", but I would agree they're undereducated. I don't think it's just because they feel we need to "do something".

Regarding the socialist calculation debate; I would have thought so too not long ago. I even thought it was generally accepted that Hayek had won the debate. But a friend of mine presented a philosophy paper to some mainstream economists on this subject and they all thought he was nuts for not taking into account the progress made with this and that model, and how Hayek's knowledge problem is perfectly taken into account by modern economics, etc. This is why I would leave it as 'not generally accepted'.

Mathieu -
I'm interested in what the paper was about exactly. I have been surprised at how some people have suggested that Hayek's point about the uses of knowledge "solves" externality problems, for example. I don't think it does, precisely because private property is necessary for the efficient use of knowledge and property rights are absent in externality situations. So in that sense, I think one can talk about a properly incentivized planning authority addressing externality problems without violating the Hayekian viewpoint. Was the response to the paper somewhere along these lines? I wouldn't have a problem with that, because (1.) the argument isn't that the planning authority has knowledge comparable to decentralized agents - the solution doesn't depend on that, and (2.) the argument is actually completely dependent on Hayekian insights rather than Lange's thoughts on the issue. In other words - I identify externalities as real problems PRECISELY BECAUSE I side with Hayek and I know that decentralized information that is not attached to a property rights regime is not efficiently used. Lange would approach the planning authority and the decentralized agent with indifference - both can accomplish the same tasks. It's precisely because of Hayek that I can confidently say "I expect decentralized agents to be efficient when costs and benefits are internalized and inefficient when important costs and benefits aren't internalized", because it's Hayek that connects the dots between the property rights regime (esssentially what is internalized and what is externalized - what you have rights to and what you don't) and the uses of knowledge.

I don't know if this anywhere close to the sort of criticisms that you were alluding to - but it's one example of how I think it's legitimate to say we are taking a Hayekian approach even if under some conditions Hayek himself may or may not have agreed with the conclusion. The point is I need Hayek to make that claim about externalities - I cannot make that claim with Lange. So I take the Hayekian side of the SCD and I always have.

I would just note that reading Hayek's argument in terms of "decentralized" knowledge alone as well as the "efficiency" of actors can lead one astray in capturing what I think are the deeper insights of the 1945 article and his later work on the subject. The way in which many mainstream economists talk about Hayek's contribution in that paper is at odds with what it actually says. It does not say "prices contain all the information necessary to reach equilibrium" - even "free market prices." Unfortunately, that is the way it is often read.

This sentence of Daniel's seems much closer to the mainstream (and wrong) reading than what Hayek was actually saying: "I expect decentralized agents to be efficient when costs and benefits are internalized and inefficient when important costs and benefits aren't internalized."

The argument is a different one: prices are knowledge surrogates that enable us to make knowledge available in surrogate form to each other that would otherwise go unused. This is not about equilibrium prices but DISequilibrium prices. And it's not about incentives but knowledge.

In fact, the word "efficient" appears in the 1945 paper only twice, both with reference to economic SYSTEMS being "efficient". ("Inefficient" appears once - with reference to an example of an "inefficient manager.") There's no notion in that paper of the "efficient" use of knowledge nor about agents/actors acting "efficiently."

Steve - I'll probably tend to phrase it in a more mainstream way, but I'm not unsympathetic to this reading (at least I don't think I am - you may still contend that I am). The reason why markets are efficient (I would agree - this is a word for systems and not individuals - the system of "decentralized agents" [plural], not individual agents is what I was calling efficient) is precisely because knowledge is made available to others through actions taken in response to disequilibrium prices. If a price is artificially low relative to actual cost, an agent with local knowledge will raise prices to compensate for the subjective costs he feels he bears, and that perturbation of the price from its former disequilibrium condition is "surrogate", useful knowledge for other agents to respond to.

My point is that the mechanism by which local knowledge gets transformed into surrogate knowledge is the price mechanism - specifically prices associated with contracts for property. If there is no right to property for a certain cost or benefit, there is no contract, and therefore no price, and thus there is "unused information". That is the fundamental problem with externalities - externalities are a case of unused local knowledge. And it's not random local knowledge either - knowledge is systematically unused. The benefits of pollution are for the most part "used" as surrogote knowledge, but the much of the knowledge of the costs of pollution are "unused". That's the problem - the non-random, systematic under-utilization of certain kinds of knowledge by the price mechanism.

I'm sure I'll tend to use somewhat different language, and I may still fail to convince people, but Hayek is a major influence on the way I think about these things. Maybe I'm just expressing it somewhat unclearly still.

I don't recall anyone previously staking out a middle ground between Robbinsian maximizing and Misesian action, so perhaps I can be forgiven for perplexity when reading your comments. If you are right, you would seem to be onto something a bit novel. I guess you are thinking about Prospect Theory? I would tend to think of it as, like, beside Robbinsian maximizing, not between Robbins and Mises. But we are probably at the point where the discussion can be pursued fruitfully only in a more scholarly context.

@ Steve

I think Dan goes over the top often enough to justify griping, and I'm not the only griper. OTOH I did notice that as soon as I made my gripe, John V posted a cascade of lengthy posts one after another. To coin a phrase: Oy!

Roger - what precisely is over the top? I've never been interested in being a jackass, so just let me know. The problem is, what is "over the top" when it comes down to it always seems to be that I don't always agree. That doesn't seem to amount to being "over the top" to me. Have I insulted someone? I don't think I have. If I have by all means tell me.

A conversation can support only so much self reference. "But then you said X, which *totally ignored* my clear statement that Y . . . " I am willing to presume from here on out that any trollishness in your past behavior, if such there be, is entirely behind you and does not represent your current and future behavior on this or any blog. As justified as I may feel in my offending remark, I hope I am not one to hold grudges or behave in an otherwise unforgiving or intolerant manner. My thanks if you can adopt a similar attitude of amity and a similar presumption of good will.

I for one never assumed Daniel was a troll, even if he has induced a considerable amount of eye-rolling on my part. :-) Perhaps I am sympathetic because I too have once been unjustly accused of being a troll. I will say, in defense of Daniel's approach, that an agonistic approach is often good for discovering truth. It is an approach I often use myself.

Nikolaj:
"...or that the references to the ABCT do not include anymore crazy anti-Fed talk?"

I don't know where this idea that Steve and the others are Fed apologists came from, but anyone who thinks that clearly hasn't been paying attention. This is actually one point that Mises Institute/GMU/FEE etc. types all agree on. I don't understand why some people insist on making an issue out of it when no disagreement exists.

Steve Horwitz also actually suggests that the TSA airport scanning is killing people, and has stated such on TV. Get that. The government is killing people. -Steve, the vail of separation between economics and public policy is very thin indeed. When one (even an amateur) begins to apply the economic way of thinking to public policy, it indeed tends to lead in certain directions, even though the resulting public policy implications can often seem very non-intuitive to much of the uninformed general public. This reality can make even the professional academic economist vulnerable to the charge of "crackpottery" by the public, or worse make him the champion of real "crackpots" in the general public.

However, "Austrian" economic methodology in particular (light on mathematical econometrics) whether it is "good" economics or "bad", does indeed naturally tend toward certain distinct policy implications. I'm afraid denying this will not be seen by many as credible. If an economist's methodology leads her to conclude that a particular public policy is stupid, or an historical assumption has been grossly mis-interpreted (such as the popular notion of the great depression), it is not hard to understand how even a professional economist might be tempted to take sides.

Now may I pose an experiment: We have never met, but I bet I can guess at least 90% of your personal policy preferences just by knowing something about your economic school of thought. On many, many big policy issues, I bet that I can read your mind based solely on knowing something about your academic research conclusions. If my hypothesis is correct, what might this say about your assertion that economic literacy does not necessarily lead to a particular set of policy conclusions? (I'm not suggesting that I'm an economic literate, but rather that you are, and it leads you to many distinct policy conclusions, even if held only privately).

I think what you really want to say in this post is that you abhor the notion of having your academic research tarnished in the eyes of your fellow academics by right-wing lug nuts who call themselves "Austrian". I say that's life and get used to it. Many professionals deal with this kind of thing in some form or fashion. You just happen to be in a profession that has gotten its 15 minutes of fame because of the recession. Eventually this will die off, and you can go back to living a normal life. Just be patient.

@Roger: Perhaps it is novel, I don't know. It just seemed to me that Robbinsian maximization is much more stripped down than choice, while action is a much "meatier" concept. I haven't really thought of it much more than that. But I totally agree with you, if this is new and novel, then the line of thinking should definitely be pursued in a more scholarly context.

Since Steve (correctly) lists me as an Austrian economist who is not a libertarian, perhaps I can address K Sralla's last comment. If you are an Austrian, then you will accept the Austrian side of the socialist calculation debate and you will probably accept some some version of the Austrian theory of business cycles. Assuming away idiosyncratic normative ideals, these scientific convictions will lead you to a basically pro-market view that includes some notion of "sound money." But "basically pro-market" covers a wide range of policies. It does not rule out, for example, social insurance, including some sort of state provision of health insurance, or income transfer programs. I support both, unlike most (all?) self proclaimed libertarians. Nor does the Austrian support of sound money tell us whether we want a gold standard, better governance for the central bank with fiat currency, or some other option for avoiding large swings in either the volume or value of money. Thus, while some policy preferences are not really compatible with Austrian economics, there is plenty of room for disagreement on policy among Austrian economists. In other words, K Sralla has a bit of a point, but exaggerates, especially with the 90% remark.

My point was simply to say that attempts to say that X is "the Austrian position" on Y, where Y is a policy conclusion, are misguided, especially when Y is NOT an economic policy issue. Even though Z% of Austrians might agree on Y, there will be plenty of non-Austrians who also agree on Y AND you cannot get to a preference for policy Y without importing things that are not, strictly speaking, Austrian economics.

I don't care about my own research being tarnished. I care about the ideas of Austrian economics - and of Mises and Hayek - being bastardized by people who do not understand them, and in so bastardizing them, undermine them *and the very policy conclusions they wish to forward - and with which I often agree*.

I just want people to be intellectually honest about what AE is and what it is NOT and to stop claiming for it conclusions that are NOT "the Austrian" position, especially on matters outside of economics.

I appreciate your comments and see your points. Roger may be right, that the 90% may be a bit of a stretch, but it is also probably accurate that many, if not most academic economists in the neo-classical or Austrian schools would probably consider themselves libertarians of some stripe. My point is that such a group of specialized economists probably coming from highly diverse social/religious backgrounds, seem to find much common policy ground on the basis of an economic way of thinking. Most of the divergence in policy preference seems to hinge largely on how each might evaluate policy in a world of second and third bests, not on first principles. If I am right on this, then might I suggest that this is not a coincidence, but rather that economic education probably contributed to these commonly held policy positions.

As far as worrying that the ideas of Mises and Hayek will become bastardized by the popular minyons, well isn't bastardization a risk in many fields? I am an amateur operatic tenor (and my friends and family tell me I'm pretty good), but I doubt that Jussi Bjorling or Luciano Pavoratti would ever be overly worried that my amateur singing would bastardize their art. Even if I sang on a website for all to hear, it would be pretty clear to most who the pros were by the level of our singing. Pavarotti and Bjorling would likely be fairly confident that my sour Bb would not besmurch the name of tenors everywhere.

I meant the Milton Friedman or Bryan Caplan or Tyler Cowen types of mainstream economists, however they classify themselves. Even though they may be neoclassical or mainstream or Chicago School or Freshwater School, as an interested bystander, it seems to me that there currently exists in the United States a distinct group of economists, that although not seeing themselves as "Austrian" due to issues with one or more propositions on Peter Boettke's list, still have much in common in terms of their high regard for a spontaneous organizing principle of markets and human social institutions. If we group this particular strand of "mainstream economists" in with Austrians, there are indeed many libertarians out there amongst academic economists. My point is that they are mostly libertarians not because they were raised that way, but mostly becuase they view economics in a similar way, and that leads them to similar policy conclusions. You may be the exception to the rule, but I would suggest that the rule is a rule.

The critique is generally that mechanism design theory and other models solved Hayek's problem. As Steve Horwitz explained, what they solved is not the knowledge problem.

I would add that in the 45 article Hayek doesn't say that the market is superior to planning. It's more subtle than that.

It's funny that you mention externalities, I just had a discussion with a guy here on the Austrian treatment of externalities. He used to be very enthusiastic about AE, but he said his enthusiasm eventually washed away because he thinks it doesn't provide any framework for working on the law & economics of negative externalities besides dogmatically repeating (his words) that defining private property correctly solves the problem. I'm not sure what to think about this, I'm not familiar enough with the literature.

As I see, human action is rooted in the concept of uncertainty. There is no human action without uncertainty, as the absence of uncertainty would imply in the optimal "action plan" and it would never change.

I think that Mises defined human action as the process of continuous changes in the individual's action plans. This process is fueled by discoveries of hitherto unnoticed errors.

In modern mathematical economics there is no process of human action because there is no genuine uncertainty. As result, the action plans at time zero are optimal, and the passage of time only implies in the mechanical execution of action plans formulated at time zero.

You posted: "Pavarotti and Bjorling would likely be fairly confident that my sour Bb would not besmurch the name of tenors everywhere."

But, if you were a black metal vocalist and called yourself a tenor and had 50 times the media exposure of Pavarotti, and the media started saying that tenors have "harsh vocals", would the real tenors like it? I think not.

What today passes for "austrian economics" in the minds of most people has nothing to do with the real stuff. That's a problem.

Excellent statement, Steve. Thank you for saying this, and for saying it so clearly.

This is the economics laid out in Human Action, it's what I learned at NYU, it's what we teach at Hillsdale, and I'm glad it is what you, Boettke, and others are promoting. It's serious economics, not pop econ or ideology.